There must be a minimum of two line items in a journal entry, though there is no upper limit to the number of line items that can be included. A two-line journal entry is known as a simple journal entry, while one containing more line items is called a compound journal entry. A company may use a great many journal entries in just a single accounting period, so it is better to use a larger number of simple journal entries than a smaller number of compound journal entries, in order to clarify why the entries are being made. This is useful when journal entries are being researched at a later date, and especially when they are being reviewed by auditors.

Whenever you create an accounting transaction, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry against the other account.

The totals of the debits and credits for any transaction must always equal each other, so that an accounting transaction is always said to be "in balance." If a transaction were not in balance, then it would not be possible to create financial statements. Thus, the use of debits and credits in a two-column transaction recording format is the most essential of all controls over accounting accuracy.

In a smaller accounting environment, the bookkeeper may record journal entries. In a larger company, a general ledger accountant is typically responsible for recording journal entries, thereby providing some control over the manner in which journal entries are recorded.

Format of the Journal Entry

At a minimum, an accounting journal entry should include the following:

The accounts into which the debits and credits are to be recorded

The date of the entry

The accounting period in which the journal entry should be recorded

The name of the person recording the entry

Any managerial authorization(s)

A unique number to identify the journal entry

Whether the entry is a one-time entry, a recurring entry, or a reversing entry.

It may be necessary to attach extensive documentation to the journal entry, to prove why it is being recorded; at a minimum, provide a brief description of the journal entry.

Special Types of Accounting Journal Entries

A reversing journal entry is one that is either reversed manually in the following accounting period, or which is automatically reversed by the accounting software in the following accounting period.

A recurring journal entry is one that repeats in every successive accounting period, until a termination date is reached. This can be done manually, or can be set up to run automatically in an accounting software system.

Accounting Journal Entry Examples

Arnold Corporation sells a product to a customer for $1,000 in cash. This results in revenue of $1,000 and cash of $1,000. Arnold must record an increase of the cash (asset) account with a debit, and an increase of the revenue account with a credit. The entry is:

Debit

Credit

Cash

1,000

Revenue

1,000

Arnold Corporation also buys a machine for $15,000 on credit. This results in an addition to the Machinery fixed assets account with a debit, and an increase in the accounts payable (liability) account with a credit. The entry is:

Debit

Credit

Machinery - Fixed Assets

15,000

Accounts Payable

15,000

Unbalanced Journal Entry

If a journal entry is created where the debit and credit totals are not the same, this is called an unbalanced journal entry. If you attempt to enter an unbalanced journal entry into a computer accounting system, the error-checking controls in the software will likely reject the entry. However, if you create an unbalanced journal entry in a manual accounting system, the result will be an unbalanced trial balance, which in turn means that the balance sheet will not balance. The following journal entry is unbalanced; note that the debit total is less than the credit total. In such cases, you must correct the underlying unbalanced journal entry before you can issue financial statements.

Debit

Credit

Machinery - Fixed Assets

10,000

Accounts Payable

15,000

Journal Entry Fraud

It is much more common for accountants to commit fraud through the use of journal entries than through the use of such common transactions as recording supplier invoices and creating customer invoices. The reason is that these more common transactions have a system of controls built up around them that is designed to detect a variety of issues. Conversely, there are fewer controls over journal entries, which makes it easier for someone to create a fraudulent transaction. These transactions are particularly difficult to spot if the amount recorded is considered immaterial, in which case auditors are unlikely to spot the transgressions.